How to Start an LLC in the U.S. as a Non-Citizen

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FAQs

Which state is recommended for non-US residents to form an LLC?

Wyoming LLCs are highly favored by non-resident entrepreneurs, especially those involved in online and e-commerce businesses, due to how easy it is to form and manage.

Is it possible to form an LLC in the US without residing there?

There’s no requirement to be a US citizen or resident or be physically present in the country to form an LLC.

How can a non-resident establish an LLC in the United States?

Non-residents looking to set up an LLC in the USA need to follow the same steps as a resident, with a few additional considerations, for example, applying for an ITIN.

How do I choose a registered agent, and what services do they provide?

Choose a registered agent that is reliable, experienced, and located in the state where you’re forming your LLC.

What is the difference between an EIN, SSN, and ITIN?

• EIN (Employer Identification Number): Used to identify a business for tax purposes.
• SSN (Social Security Number): Assigned to US citizens and residents for tax purposes.
• ITIN (Individual Taxpayer Identification Number): Issued to individuals who need to file taxes but are not eligible for an SSN.

Do I need a green card to open my own business?

No, you don’t need a green card to open a business in the US. Non-residents can form an LLC without being physically present in the country.

Do my employees need to pay tax if they don’t live in the US but the LLC is registered there?

They may not be subject to US income tax on their earnings. However, their tax obligations depend on their country of residence, tax treaties, and the nature of their work, so it’s best to consult a tax professional for specific guidance.

Can I hire employees in the US?

Yes, you can hire employees in the US for your LLC. However, you must follow federal and state employment laws.

How long does business formation take?

The time it takes to form an LLC varies by state but typically ranges from a few days to a few weeks. Some states offer expedited processing for an additional fee.

Is an LLC classed as an incorporation?

No, an LLC is not the same as a corporation. While both offer liability protection, an LLC is a different type of legal structure.

What types of LLCs are there for non-residents?

Non-residents can form either a single-member LLC, which is owned and managed by one person, or a multi-member LLC, which is owned and managed by multiple people. The choice between the two depends on the individual’s business structure and preferences.

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Understanding the basics of an LLC

An LLC, or Limited Liability Company, stands out for its flexibility and protective features. For non-U.S. citizens considering this business structure, it’s important to understand the benefits and drawbacks of an LLC.

LLCs are a common business type all over the globe but have different names depending on the country the business is located. In the United Kingdom, they are called “Private Companies Limited by Shares” (Ltd); in Australia, they are referred to as “Proprietary Limited Companies” (Pty Ltd), and in India, these entities are called “Private Limited Companies” (Pvt Ltd).

Benefits of an LLC

• Liability protection: LLCs protect personal assets, such as homes or bank accounts.
• Pass-through taxation: LLCs are considered pass-through entities, meaning that profits are taxed only once at the individual level. This protects against double taxation, which is a common feature of corporations.
• Operational flexibility: LLCs require less paperwork than corporations, allowing for flexible management that can suit the owners’ specific needs.

Benefits of an LLC for a Non-U.S. Citizen

• Access to markets: Forming an LLC in the U.S. provides access to the world’s largest economy.
• No citizenship required: There are no restrictions on the nationality of members, allowing non-U.S. citizens to own and manage an LLC.
• Strategic tax advantages: Depending on your country’s tax treaty with the U.S., there may be potential tax advantages, making it financially beneficial long term.

You can have a business in your home country and a separate LLC in the US. This can help you expand your business and take advantage of the benefits of a US LLC while maintaining a presence in your home market.

Drawbacks of an LLC

• Limited investor appeal: LLCs face challenges when seeking outside investment, as investors often prefer a corporation’s structure. This can limit the ability to raise capital, slowing potential growth.
• State-specific regulations: LLCs are governed by state laws. Laws vary from state to state, potentially posing different challenges depending on which state it was formed in.

Drawbacks of an LLC for a non-U.S. Citizen

• Complexity of US tax laws and compliance: Non-US residents who form an LLC in the U.S. must learn about a new set of tax laws. This includes understanding tax returns and complying with regulations. Not following tax laws can lead to penalties and legal consequences.
• Logistical issues: Non-residents may struggle to manage their U.S. company effectively due to a lack of a physical presence in the country. Tasks like handling mail, opening a bank account, and attending meetings become harder for those based abroad.

Choosing the best state for your LLC

Choosing the best state for your LLC involves weighing several factors against your business goals and operational needs. The most common states for non-citizen LLCs are Wyoming, Delaware, New Mexico, and Nevada.

• For most non-resident entrepreneurs, particularly those running online or e-commerce businesses, Wyoming‘s combination of low costs, privacy protections, and business-friendly policies make it the most popular choice for forming an LLC.
• Delaware is often recognized for its business-friendly laws and prestigious Court of Chancery. It may be more suitable for businesses planning to convert to a C Corp in the future or those seeking venture capital.
• New Mexico is an attractive option for non-resident businesses due to its lack of annual franchise tax. It also offers a high degree of privacy by not disclosing member information.
• Nevada is renowned for its asset protection laws and lack of personal or corporate income tax. The state’s business-friendly policies and streamlined LLC formation process add to its appeal.

Factors to consider

1. Initial and ongoing costs: Compare the filing fees and annual maintenance costs. Wyoming stands out for its low initial and virtually non-existent ongoing fees.
2. Legal environment: Delaware’s Court of Chancery is renowned for its focus on corporate law. This is a key advantage for non-resident LLCs seeking a stable environment.
3. Tax considerations: If minimizing tax liability is a priority, Wyoming and Nevada offer significant advantages with no state corporate income taxes.
4. Investor attraction: Delaware is renowned for its corporate environment and legal predictability, which are significant factors if you plan on raising funds from investors.
5. Privacy: Delaware, Wyoming, Nevada, and New Mexico all allow registered agents to shield the identities of the business owners.

How forming an LLC in the U.S. is different for Non-Citizens

Despite a few differences, forming an LLC is more or less the same for both residents and non-residents.

There are a few key differences non-residents may face in forming and maintaining LLCs:

1. Registered agent: Non-residents typically need to hire a registered agent with a physical address in the state in order to receive legal documents and correspondence. Residents can serve as their own registered agents, as they have an address in the state.
2. Taxation: Non-residents may not be subject to certain state taxes. However, due to tax treaties, they may need to pay taxes in their home country.
3. Banking: Non-residents may face challenges when trying to open a bank account in the US, as they often need an address. However, in recent years more and more banks are allowing non-residents to open a US bank account from a phone or laptop.
4. Ongoing compliance: It may be harder for those based outside of the US to become familiar with US laws and state regulations.

How to form your LLC as a non-citizen

Starting an LLC as a non-resident is similar to starting one as a resident, with a few additional steps.

1. Decide which state to form your LLC in

Each state has different benefits and regulations for non-residents. Consider factors such as tax advantages, privacy laws, and annual fees. We recommend Wyoming for its low costs, strong privacy laws, and business-friendly policies.

2. Choose a business name for your LLC

A well-thought-out name can help your LLC stand out and attract customers, so it is important to try to choose a unique name.

Perform a name search, generally on the Secretary of State’s website, to check a name is not already being used. The name should comply with state-specific rules, including one of the LLC identifiers ‘LLC’ or ‘L.L.C.’

If you want to use a different name or not use the LLC identifiers, you need a Doing Business As (DBA).

3. Hire a registered agent

Registered agents play a pivotal role in non-resident LLCs, as they act as the point of contact between your business and the state and will also often be the legal address.

A registered agent service receives legal documents on behalf of your LLC. This agent must be located in the state and be available during business hours.

4. Establish a U.S. business address

A U.S. business address is often necessary for bank and legal processes. If you don’t have an address in the US, you have a few options:

• Registered agent’s address: Many non-residents use their registered agent’s address as the official business address.
• Virtual office: Provides a physical address without actual office space, often including mail handling and forwarding services.
• Commercial office spaces: Renting or leasing an office space if your business operations require a physical presence.

5. File formation documents

Filing Articles of Organization officially establish your business in the U.S. The documents must be filed with the state you are planning on doing business in:

• Wyoming: File online through the Wyoming Secretary of State website or submit a hard copy by mail. The filing fee is $100.
• Delaware: File online through the Delaware Division of Corporations website or submit a hard copy by mail. The filing fee is $110.
• New Mexico: File online through the New Mexico Secretary of State website. The filing fee is $50.
• Nevada: File online through the Nevada Secretary of State SilverFlume Business Portal or submit a hard copy by mail. The filing fee is $75.

6. Apply for an Employer Identification Number (EIN)

An EIN (Employer Identification Number) is used to identify a business for tax purposes. These are needed for tax purposes, hiring employees, and opening business bank accounts.

There are other acronyms to be aware of:

• SSN (Social Security Number): Assigned to US citizens and residents for tax purposes. Non-residents with US citizenship should have an SSN as they are assigned at birth.
• ITIN (Individual Taxpayer Identification Number): Issued to individuals who need to file taxes but are not eligible for an SSN. Non-residents without U.S. citizenship need to apply for an ITIN or complete Form SS-4 to get an EIN.

To obtain an EIN:

• With SSN or ITIN: You can apply for your EIN online.
• Without SSN or ITIN: You must complete Form SS-4 and return it to the IRS. It can take between 8-11 weeks to receive your EIN.
  • When filling out Form SS-4, provide the following information:
  • Business name or DBA name
  • Address of your LLC
  • Reason for applying for an EIN
  • Date business started
  • Products or services your business offers

7. Open a U.S. business bank account

A domestic business bank account is essential for all companies operating in the USA. They allow owners to receive payments with ease and can establish credibility in the U.S. market.

To open a bank account for your LLC, you will need:

1. LLC approval documents: Such as Articles of Organization or other formation documents.
2. Employer Identification Number (EIN)
3. Proof of identification: Two forms of ID are required, such as a foreign passport and a driver’s license.
4. U.S. business address: This can be the address listed in your state documents and on your EIN Letter from the IRS.
5. Additional documentation: Depending on the bank, you may need a US phone number and proof of address.

8. File LLC taxes

Understanding US tax obligations is important as it keeps the business compliant, avoiding potential fines and penalties.

Tax obligations:

• Federal and state taxes: You must pay taxes on US-sourced income.
• Required tax forms: Depending on your LLC structure, you may need to file several forms, including:
  • Single-member LLC: Form 1040NR for non-resident aliens, along with Form 5472 and a pro-forma Form 1120.
  • Multi-member LLC: Form 1065, along with individual Schedule K-1 forms for each member and Form 1040NR for non-resident members.
• Corporate tax rates: The US corporate tax rate stands at 21%, and personal income tax rates range from 10-37%.

Tax benefits:

Forming an LLC in the US can offer significant tax advantages for non-US residents:

• Avoidance of double taxation: Non-resident aliens from countries with no individual income tax are not required to pay US federal taxes on their business income, effectively avoiding double taxation.
• Credibility and ease of filing: The US LLC structure is globally recognized, enhancing business credibility.

Considerations:

• Tax treaties: Check if your home country has a tax treaty with the US that might offer relief from certain taxes or reduced rates. For example, the UK and the Philippines have tax treaties that can benefit business owners.
• Professional advice: Given the intricacies of US tax law, speak with a tax professional experienced in international business structures to ensure you are aware of obligations and potential benefits.

9. Visa requirements

Non-US residents can own an LLC in the US without a specific visa. However, if you plan to visit the business, it is a good idea to get a business visa.

You might need an E-1 treaty trader visa or an E-2 treaty trader visa. These are for nationals of countries with a treaty engaging in substantial trade between the US and the treaty country.

Additional considerations

• Compliance with US regulations: Ensure your LLC operates per federal, state, and local laws. Make sure you have the correct licenses and permits.
• Intellectual property protection: Consider registering trademarks, patents, or copyrights to protect your intellectual property in the US.
• Liability insurance: Explore options to protect your LLC from legal claims or damages.